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Rating Action:

Moody's affirms Allianz SE ratings (Aa3 senior debt) with a stable outlook

24 Mar 2016

Allianz Deutschland's Aa2 IFSRs affirmed, outlook revised to negative

NOTE:On April 05, 2016, the press release was corrected as follows: In the List of Ratings, the first subheading was changed to “The following ratings have been affirmed” and the second subheading was removed. Revised release follows.

London, 24 March 2016 -- Moody's Investors Service has today affirmed the Aa3 insurance financial strength rating (IFSR) and the Aa3 senior debt rating of Allianz SE with a stable outlook. At the same time, Moody's also affirmed the IFSRs with a stable outlook of Allianz's Italian and US life operating insurance subsidiaries. Moody's also affirmed the Aa2 IFSRs for Allianz Deutschland AG's subsidiaries and revised the outlook to negative from stable.

A list of all the ratings affected by this rating action is available at the end of this press release.

RATINGS RATIONALE

The affirmation of Allianz SE's ratings reflects the group's very strong franchise and geographic and business diversification despite headwinds from high guarantees in a prolonged low interest rate environment. Allianz is also expected to maintain very good capitalisation and operating profitability, with continued very strong financial flexibility. Less positively, the group's life insurance business is likely to continue to face constrained profitability in a low-interest rate environment, and Allianz has a significant operating exposure to Italy.

With regard to its business profile, Moody's expects Allianz to maintain its very strong franchise in most of its core markets, including Germany where it has a dominant position in life and non-life. Allianz is also one of the largest global asset managers, especially via PIMCO, which, notwithstanding substantial net outflows during 2015, is expected to continue to meaningfully contribute towards the group's earnings. In 2015, the diversification of Allianz's operating profit was very well-balanced, split non-life 48%, life & health 32%, asset management 20%. The Group's very strong geographic and business diversification helps off-set the interest-rate related pressures on the German life business.

The stable outlook also reflects Moody's expectation that Allianz's operating performance will remain strong, following the improved operating profit of EUR10.7 billion in 2015 (YE14: EUR 10.4 billion). This was notably supported by the strong performance of its P&C business, which reported a EUR5.6 billion operating profit, and an improved life & health operating profit of EUR3.8 billion. Although Moody's believes that the very low interest rate environment and some further pressure on its asset management business will subdue Allianz's profitability in 2016, the rating agency expects that Allianz will continue to report a return on capital (Moody's definition, with capital comprising shareholders' equity, free RfB reserve and hybrid capital) above 6% and earnings coverage of at least 6x-8x.

Moody's also expects the group's capitalisation to remain very good. At YE15, Allianz's Solvency II ratio improved to 200% (YE14: 191%) and, although its solvency will be pressured by market volatility during Q1 16, it has also benefited from the meaningful reduction in interest rate sensitivity during 2015. The group's adjusted financial leverage, which further improved to 25.2% (YE14: 25.8%) during 2015, is expected to remain supportive of the Aa3 credit profile.

Nevertheless, the very low interest rate environment poses a meaningful headwind for Allianz's profitability, and Moody's says that it expects the group's investment yield to continue to decline. Low interest rates are especially challenging for the group's life business which has relatively high guarantees in many core markets notably Germany. However, Moody's highlights that the aggregate spread between Allianz's asset yield (3.8% in 2015) and the average guaranteed rate on life policies (2.3%) continues to provide the group with some flexibility to manoeuvre by reducing credited rates to policyholders.

Allianz's asset management segment has also faced pressure with significant net outflows of EUR125 billion at PIMCO, driving around a 12% reduction in operating profit during 2015 to EUR2.3 billion. Although the contribution of its asset management segment to operating profits (excluding corporate and other items) has reduced from around 28% in 2013 to around 20% in 2015, Moody's notes that Allianz's Aa3 rating has not been dependent on the previous high levels of profitability with overall group earnings remaining resilient. PIMCO's net outflows significantly reduced as 2015 progressed, and going forward, Moody's expects asset management earnings to remain pressured but to show greater stability.

Allianz continues to have a high concentration risk to Italy, which has some negative impact on its overall credit profile. In 2015, the group generated around 14% of its insurance revenues and earnings in Italy. Allianz also has significant, though reduced exposure, to Italian assets, with around 4.6% (YE14: 5.1%) of group investments held in Italian sovereign bonds at YE15 which represented around 44% (YE14: 49%) of the group's reported total equity. Nevertheless, the rating affirmation reflects Moody's view that the expected weight of Italian exposure within the group, and the stable credit quality of the Italian operating environment, remain consistent with an Aa3 rating for Allianz SE.

The affirmation of those Allianz's operating subsidiaries' ratings (see rating list below) with a stable outlook reflects continued overall stability in their underlying credit profiles, and the stable outlook for Allianz SE.

ALLIANZ GERMANY

Moody's says that the change in outlook to negative from stable on Allianz's German insurance operations reflects the pressure from persistent low interest rates on Allianz's German life business, as on all German life insurers. Nonetheless, Moody's mentions that the affirmation of Allianz Versicherungs-AG's and Allianz Lebensversicherungs AG's Aa2 insurance financial strength ratings reflects the considerable strengths of the companies, including an outstanding competitive position, a good level of diversification, strong capitalisation and strong profitability. According to Moody's, Allianz Lebensversicherungs AG is the highest-rated life insurer in Germany.

Commenting further on the impact of low interest rates, Moody's says that the European Central Bank's quantitative easing programme increases the likelihood that interest rates will remain low for a very long period of time. Low interest rates have a negative impact on Allianz Lebensversicherungs' profitability, as evidenced by the ongoing decline in new business margins reported by Allianz for its German life business (2015: 2.1%; 2014: 2.5%; 2013: 2.8%). Moody's also expects that the decline in interest rates in the second half of 2015 and the first quarter of 2016 negatively impacted Allianz Lebensversicherungs' Solvency II ratio. In addition, Moody's notes that Allianz is moderately but gradually increasing its allocation to more risky asset classes in response to low interest rates. As an illustration, Allianz increased the weight of equities to 8.7% in 2015 from 7.7% in 2014 in its German operations, and the weight of real estate to 5.2% from 3.9%.

More positively, Moody's says that Allianz Lebensversicherungs is actively changing its new business mix, focusing on products which are less interest rate sensitive than the traditional guaranteed products sold in Germany. In the first nine months of 2015, traditional products only represented 19% of retail sales and 53% of corporate sales. These changes will over time partly offset pressures from low interest rates. However, the pace of change remains uncertain, given that new products with lower guarantees are less attractive for policyholders than traditional products, and the existing guaranteed products will continue to form a significant part of the balance sheet for some years.

WHAT COULD CHANGE THE RATING UP/DOWN

Downward pressure would develop on Allianz SE's ratings in case of: 1) a sustained rise in adjusted financial leverage beyond 30% and/or: 2) deterioration in profitability leading to Moody's calculated return on capital (Moody's definition) below 5% and fixed charge coverage below 5x across the underwriting cycle and/or; 3) a deterioration of the stand-alone credit fundamentals of its main operating entities would also place pressure on Allianz SE's ratings.

Upward pressure would develop in case of: 1) a sustained decrease in financial leverage to nearer 20% and/or; 2) sustainable capitalization at a very high level both in absolute terms and compared to the peer group and/or; 3) improvements in profitability leading to Moody's calculated return on capital (Moody's definition) consistently above 8% and fixed charge coverage consistently above 9x.

Commenting on what could change Allianz Lebensversicherungs' and Allianz Versicherung's ratings down, Moody's mentions a consistent reduction in operating profitability, deterioration in Allianz Deutschland's capitalisation (e.g., with a life entity's Solvency II ratio consistently below 250% without transitional measures) or a weakening in its asset quality, or a deterioration in the credit quality of Allianz SE. Conversely, significant changes in business mix while improving new business margins and maintaining a strong solvency position, could support a change in the outlook back to stable.

LIST OF RATINGS

The following ratings have been affirmed:

Allianz SE -- insurance financial strength rating at Aa3

Allianz SE -- senior unsecured debt rating at Aa3

Allianz SE -- subordinated debt rating at A2(hyb)

Allianz SE -- junior subordinated debt rating at A2(hyb)

Allianz SE -- commercial paper at P-1

Allianz SE -- senior unsecured MTN rating at (P)Aa3

Allianz SE -- subordinated MTN rating at (P)A2

Allianz SE -- junior subordinated MTN rating at (P)A2

Allianz Finance II B.V. -- backed senior unsecured debt rating at Aa3

Allianz Finance II B.V. -- backed subordinated debt rating at A2(hyb)

Allianz Finance II B.V. -- backed senior unsecured MTN rating at (P)Aa3

Allianz Finance II B.V. -- backed junior subordinated debt rating at A2(hyb)/A3(hyb)

Allianz Finance II B.V. -- backed subordinated MTN rating at (P)A2

Allianz Finance II B.V. -- backed junior subordinated MTN rating at (P)A2

Allianz S.p.A. -- insurance financial strength rating at A3

Allianz Life Insurance Company of North America -- insurance financial strength rating at A2

Allianz Finance Corporation -- backed commercial paper at P-1

Allianz Versicherungs-AG -- insurance financial strength rating at Aa2

Allianz Lebensversicherungs AG -- insurance financial strength rating at Aa2

PRINCIPAL METHODOLOGY

The principal methodologies used in rating Allianz SE, Allianz Finance Corporation, Allianz Finance II B.V. and Allianz S.p.A. were Global Life Insurers published in December 2015, and Global Property and Casualty Insurers published in December 2015. The principal methodology used in rating Allianz Lebensversicherungs AG and Allianz Life Insurance Company of North America was Global Life Insurers published in December 2015. The principal methodology used in rating Allianz Versicherungs-AG was Global Property and Casualty Insurers published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The person who approved Allianz SE, Allianz Lebensversicherungs AG, Allianz Versicherungs-AG, Allianz Finance Corporation and Allianz Finance II B.V. credit ratings is Antonello Aquino, Associate Managing Director, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

The person who approved Allianz S.p.A. credit ratings is Simon Harris, MD-Global Insurance and Managed Investments, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

The person who approved Allianz Life Insurance Company of North America credit ratings is Marc Pinto, MD - Financial Institutions, Financial Institutions Group, JOURNALISTS: 212-553-0376, SUBSCRIBERS: 212-553-1653

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the Website.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dominic Simpson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Allianz SE ratings (Aa3 senior debt) with a stable outlook
No Related Data.
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